The COVID-19 Pandemic and consequent lockdown measures have resulted in many companies facing unprecedented times and experiencing many financial and other challenges, due to them being either:
- Unable to operate their business, as a result of the restrictions imposed during the lockdown, and subsequently unable to generate an income or provide work to their staff (cannot pay their salaries); or
- Able to operate their business, but at a severely reduced scale, and subsequently cannot provide sufficient work to all the staff (pay all their salaries) or generate enough income to cover the company’s expenses.
Many companies may, therefore, be considering closing their businesses down permanently, as a result of these financial difficulties and distress caused by the National Lockdown, or even restructure their businesses, so as to be able to survive during and post the Covid-19 lockdown, and will, therefore, be considering the possibility of retrenchments during the lockdown period.
Retrenchments are dismissals based on the operational requirements of the employer and are regulated by section 189 and 189A of the Labour Relations Act, 1995 (LRA). Operational Requirements are defined by the LRA as requirements based on the economic, technological, structural or similar needs of the employer.
Section 188 of the LRA also requires that such a dismissal will only be fair if the reason for the dismissal is fair and the dismissal was affected in accordance with fair procedures.
- Substantive Fairness:
The question of whether an employee is dismissed for a fair reason will be a factual question. The employer will have to prove that the reason for dismissal is due to a valid and existing operational requirement and that this is the real reason for the dismissal. The employer will also have to show that this dismissal was the last resort and that there were no other alternatives available to avoid the dismissal.
Some examples of scenarios that could causes severe financial distress to companies and lead to possible closure or require them to restructure and that could constitute a valid operational requirement, are:
- Sales or services dropped during the lockdown period;
- Closure of the businesses or restricted from operating (non-essential);
- Shortages or unavailability of stock or materials.
- Procedural Fairness:
Section 189 and 189A of the LRA, read with section 41 of the BCEA, specifies the procedural requirements for a fair dismissal, based on operational requirements. These requirements are briefly set out below:
- Written disclosure of information and invitation to consult.
The employer has to disclose all the required information to the employees, regarding the matters pertaining to the proposed retrenchment, for the purposes of proper consultation between the parties.
- Prior consultation.
The employer is, depending on the circumstances, required to consult with any party determined by a collective agreement, Workplace Forum, Trade Union or party likely to be affected by the proposed retrenchment (or their elected representatives).
- Attempt to reach consensus.
The parties are required to consult with each other in an attempt to reach consensus on the matters pertaining to the proposed retrenchment, as required in section 189(2) of the LRA. Matters that could be crucial to discuss, especially during the Covid-19 lockdown situation, would be alternatives considered or implemented to avoid dismissals and measures to minimise the number of dismissals.
- Opportunity to make representations.
Parties should have the opportunity to make representations regarding the issues, referred to in section 189(2), and be given an opportunity to respond to the other party’s representations.
- Consider representations.
The employer must properly consider all representations made and should the employer disagree with any representations, the employer should provide reasons.
- Selection criteria and Severance Pay.
The parties are required to consult regarding selection criteria, which has to be fair and objective. The parties are also required to consult over the severance pay that is to be paid out to the retrenched employees.
- Notice of retrenchment.
Should the parties have exhausted the consultation process, whether they have come to an agreement or not, the employer can proceed to serve notices of retrenchment, in accordance with any agreement reached or proposals made by the employer.
Bargaining Councils may also specify specific procedures to be followed, with regard to retrenchments in their sectors, which any employer, who falls within the scope of that Bargaining Council, is required to comply with.
Section 189A of the LRA deals specifically with “large scale retrenchments” and has further procedural requirements, that have to be met in order to fairly dismiss employees.
The procedures that section 189A prescribe will be applicable if the company employs more than 50 employees and is contemplating retrenching at least:
- 10
employees (where the employer employs between 51 and 200);
- 20 employees (where the employer employs between 201 and 300);
- 30 employees (where the employer employs between 301 and 400);
- 40 employees (where the employer employs between 401 and 500);
- 50 employees (where the employer employs 501 and more).
For example: Should the employer employ 320 and is contemplating of retrenching 20 employees, section 189A will not apply.
Should the number of retrenchments in the previous 12 months and the number of currently contemplated retrenchments exceed the above criteria, section 189A will also apply.
Should section 189A be applicable, the parties (company or other consulting parties) may elect to appoint a facilitator. A facilitator is then appointed by the CCMA, to formally facilitate the required consultation process between the parties.
Section 189A also prescribed specific time periods that need to be complied with, where parties are forced to consult and attempt to reach consensus. If no consensus or agreement can be reached between the parties, the employer will have to adhere to these time period, which may be up to 60 days, and may not retrench before these time periods have lapsed.
The Directives and Regulations, issued in terms of the Disaster Management Act, 2002, do not permit companies to deviate from the LRA nor do they prohibit the dismissal of employees due to operational requirements. Until we are advised otherwise by Government, section 189 and 189A continues to govern the process to be followed and Covid-19 lockdown measures will not give the employer the right to skip these requirements and employees will also still be able to refer unfair dismissal disputes to the CCMA or Bargaining Councils.
The Covid-19 lockdown measures, however, when considering all the substantive and procedural requirements that have to be complied with, could cause many problems for companies who want to retrench and still need to comply with such requirements.
- Substantive Fairness problems:
Although the company may have a valid operational reason for the dismissals, the employer however still has to show that this is the real reason for the dismissals and that it has no other alternative to avoid these dismissals (last resort).
The government have encouraged companies to make use of specific relief measures put in place, to assist struggling companies during the Covid-19 crisis, in order to retain staff and avoid job losses. Some of these measures include:
- Department of Small Business Development (Debt Relief Finance Scheme)
- SAFT (Oppenheimer Family Fund)
- SARS (various tax relief assistance, including through the Employment Tax Incentive Scheme)
- Industrial Development Corporation (Funding for vulnerable companies)
- State-Backed Covid-19 loans from banks
- Assistance in various sectors:
- Department of Agriculture (small farmers)
- Property Industry (Retail Tenants Relief Packages)
- Department of Tourism
- Department of Labour (UIF and National Disaster Benefit – Temporary Employer/Employee Relief Scheme), for employees on short time or lay-off during the lockdown period.
Should an employer retrench employees due to financial distress, he will have to prove that he, before resorting to dismissals, exhausted all possible avenues to avoid dismissals. All possible avenues include applications for any or all of the possible and available relief schemes.
SHORT TIME OR LAY OFF
The implementation of short-time or lay-off may also be an available option to avoid the retrenchment of employees. Many employers are under the impression that short time or lay-offs may now be implemented randomly and unilaterally if the business suffers because of slack in business activities due to the Covid-19 crisis. This is however not true.
The unilateral implementation of such short time or lay-offs will only be justified in cases where the business is drastically affected by and as a direct consequence of the Covid-19 preventative measures imposed. In other words, had to close.
Where these preventative measures impact indirectly on the business, employers may not unilaterally implement a short time or lay-off. It may only be implemented by agreement between the employer and affected employees.
If no agreement to that effect can be reached, the employer must initiate retrenchment procedures and offer short time or lay-off as an alternative to avoid dismissals. If employees persist in their refusal to go on short time or lay-off, they may be retrenched.
There are also various other measures that companies can consider implementing, to change the way they operate during the Covid-19 lockdown periods, to enable them to still be able to continue their business activities. These measures may include having employees continue to work from home where possible.
The above measures or alternatives are not only relevant when considering what the employer can do to avoid retrenchments, but are also relevant when considering the measures the employer can follow to minimise the number of employees that are to be retrenched. These measures, although important to be considered where the employer is reducing staff due to financial or structural reasons, will play a less significant role where the employer is retrenching due to a decision to close the business.
- Procedural Fairness problems:
- The service of notices and the disclosure of information, required by the LRA prior to the consultation with the affected employees, could be problematic where employees are at home due to the lockdown measures and it may be impossible or difficult to comply with this requirement. Employees may not have access to e-mails or facilities to receive these documents.
- Employees may also not be able to obtain proper assistance from their union or representatives during this period, to obtain advice or properly prepare for the proposed consultation. If they are required to do so remotely, it can cause substantial delays in finalising the process.
- Social Distancing rules and travel restrictions, imposed during the lockdown, may also make it impossible to conduct an in-person consultation meeting with the affected employees. Trade Unions or representatives may also not be able to attend such consultations. Conducting the retrenchments in small groups or consulting via alternative methods, like Skype or e-mail correspondence, is a possibility but may also severely delay the finalisation of the process, as parties need to be allowed a proper opportunity to make representations and respond to the other party’s representations, as mentioned above. Employees may also not have access to e-mail or facilities to conduct the consultation remotely.
- Section 189A facilitation may also be problematic during the Covid-19 restrictions and will be dependent on the functionality of the CCMA, to appoint a facilitator and facilitate the consultation process.
- Other considerations:
- When a company retrenches employees, they have to pay any accrued annual leave, notice pay (where applicable), severance pay, salaries and overtime (where applicable). This could aggravate a company’s already strained cash flow situation and cause further financial distress.
In conclusion, employers who are experiencing difficulties during the Covid-19 lockdown period, and are considering retrenchments, should:
- Attempt to first consider and make use of the relief measures that are available, to assist vulnerable or struggling companies during the lockdown period;
- Consider any other alternative to avoid retrenchments or minimise the numbers of retrenchments, like implementing short time or lay-offs and making use of the assistance through UIF (TERS benefit scheme);
- If they can show that they have exhausted the alternative measures or that they are not viable or applicable to resolve their problem, they can consider proceeding with a retrenchment process.
- Should the employer proceed with a retrenchment process, they must comply with all the procedural requirements imposed by the LRA or relevant Bargaining Council, despite the difficulties they could experience as a result of the Covid-19 preventative measures imposed by Government.
About the Author
Otto Bronkhorst is the National Manager for Training and Research at SEESA. He was admitted as an attorney in September 1991 and has 19 years of experience in Labour Law.